PCBs go beyond conventional banking

Private commercial banks (PCBs) now target closed-end mutual fund flotation, a business beyond conventional banking.

At least six commercial banks have announced their interests to go for such mutual funds, which are considered risk-free investment tools in stock trading.

A closed-end fund is a collective investment scheme with a limited number of shares for a stipulated period.

Southeast Bank is the latest among the PCBs that have joined the rally, with sponsoring a Tk 100 crore mutual fund.

The bank will subscribe at least 25 percent of the "Southeast Bank 1st Mutual Fund", while the rest is to be raised through pre-IPO placement and IPO (initial public offering).

Prior to Southeast, Prime Bank, Eastern Bank, Trust Bank, IFIC Bank and Mercantile Bank disclosed their plans to float closed-end mutual funds, which are subject to approval from the Securities and Exchange Commission.

"We have moved to float mutual fund with two objectives in mind. One is to bring a new product for our capital market, and the second is creation of an alternative source of revenue earning," said Ali Reza Iftekhar, managing director of Eastern Bank Limited, pointing to the high demand for this 'risk-free investment tool' in the capital market.

A senior official of Southeast Bank said bankers are now eager to look for diversified business tools or derivatives in addition to conventional banking, to sustain competition.

"The mutual fund floatation will ultimately strengthen our balance sheet," he said.

New mutual funds means more demand for long term investment, Sheikh Mortuza Ahmed, head of merchant banking and investment division of Prime Bank, told The Daily Star recently.

"Moreover, the more mutual funds will help the market move from retailers-driven to institutional," he said, pointing to the high volatility in retailer-driven market.

As per plan, Prime Bank will sponsor a Tk 100 crore closed-end mutual fund, of which the bank will subscribe at least 20 percent. The rest 80 percent of the "Prime Bank 1st ICB Mutual Fund", a 10-yearly one, will be raised through a placement prior to IPO, or pre-IPO placement. Per unit price of the mutual fund will be Tk 10.

Mercantile Bank will also sponsor a Tk 100 crore "MBL 1st Mutual Fund", wherein the bank's stake as sponsor will be 20 percent or Tk 20 crore.

Eastern Bank last month decided to sponsor a Tk 100 crore mutual fund for the local capital market. Of the fund, the bank will subscribe Tk 20 crore as sponsor.

Another Tk 100 crore mutual fund from IFIC Bank will hit the market as per the bank's decision last month. The bank will sponsor Tk 25 crore, or 25 percent.

Trust Bank is going to sponsor a Tk 200 crore mutual fund named "Trust Bank 1st Mutual Fund", wherein the bank's stake as sponsor will be Tk 40 crore, or 20 percent.

As many as 17 mutual funds are now listed on bourses. Of them, ICB and its subsidiaries manage 13 mutual funds, AIMS Bangladesh three and BSRS one.

The Grameen Mutual Fund One: Scheme Two amounting to Tk 125 crore is the largest listed mutual fund and the ICB 2nd NRB Mutual Fund worth Tk 100 crore the second. Mutual funds take up 5.54 percent of the total market capitalization.

Source: The Daily Star, April 29, 2009